Overcoming Challenges in the Construction Industry with Strategic CPA Support

Overcoming Challenges in the Construction Industry with Strategic CPA Support

For 2024, the construction industry continues to undergo significant challenges in adapting to new technologies and managing uncertain risks. Inflation and supply chain problems have resulted in rising material costs. Acquiring skilled labor continues to be a concern while some of the most talented baby boomers are hitting retirement age. Sustained high interest rates have made financing more difficult and expensive; at the same time, demand for construction has shifted based on government policies and the effect of an evolving remote workforce on the commercial landscape. The good news is improved administrative efficiencies can translate to significant gains in a contractor’s bottom line.

Challenges Facing the Construction Industry in 2024

Rising Material Costs 

Continued disruptions in global supply chains have led to increased prices for essential materials like steel, lumber, and concrete. Unpredictable delivery times further exacerbate these cost fluctuations. Furthermore, persistent inflation pressures drive up the costs of raw materials and energy, contributing to higher overall construction expenses.

Labor Market Challenges 

The construction industry has faced many labor struggles throughout the past few years. The scarcity of skilled labor pushes wages higher, leading to increased competition for qualified workers. Construction companies must offer higher wages and better benefits, adding to project costs. Varying pays and benefit rates also serve as a challenge for management when it comes to meeting prevailing wage and other jurisdictional regulations within different project locations.

Financing and Interest Rates 

In addition to rising input prices, the contractors must grapple with high interest rates. Higher interest rates make financing large projects more expensive and can delay or reduce the scope of planned projects. In addition, tightening credit conditions may make it harder for construction firms to secure equipment loans, impacting their ability to initiate and sustain projects.

Government Policy and Investment 

While initiatives like the Infrastructure Investment and Jobs Act provide substantial funding, the complexity of accessing and managing these funds can lead to delays. The competition for these funds can also inflate prices. Shifts in regulations, such as environmental policies or labor laws also introduce additional compliance costs and further slowdown project approvals and execution.

Successful Construction Firm Management Is Possible with Good Data and Trusted Advisors 

Effective planning and cost estimation are crucial for construction projects.  This involves having a knowledgeable team, effective communication, and reliable data from procurement through job completion.  Using newer technologies can reduce time on paper documents, offer real-time communication on the job site project status, provide analytical feedback pertaining to contract costs, change orders, materials, and labor logistics, speed HR tasks, and project future capital and equipment needs.  A trusted CPA can help provide valuable insights into the data and point you in the direction of sustained growth and profitability.

How Knowledgeable CPAs Make a Difference 

  • Forecasting and Budgeting: CPAs can create detailed financial forecasts and budgets that account for rising material costs, labor market challenges, and fluctuating interest rates. This helps construction firms achieve more realistic cost estimates for improved bid proposals and reduce low margin work.
  • Cash Flow Management: CPAs can develop predicted cash flow needed to ensure that construction firms have the necessary liquidity to manage high upfront costs and delayed payments. CPAs can also implement strategies to acquire equipment and reduce financing costs.
  • Regulatory Compliance: CPAs can help navigate the complexities of government funding and the associated compliance requirements.
  • Bonding: CPAs are integral to providing the financial reports and details of completed contracts, work in progress, and backlog needed to meet bonding requirements.
  • Data Analytics and Decision Making: CPAs utilize advanced analytics to provide real-time data insights. Reports that highlight key performance indicators, project profitability, and cost trends enable construction firms to make informed decisions about current and future projects.
  • Predictive Analytics to Reduce Risks: By leveraging predictive analytics, CPAs can anticipate future financial scenarios and project outcomes. This proactive approach helps construction firms mitigate risks and seize opportunities for growth.
  • Succession Planning: When senior management considers retirement, CPAs can assist in succession planning, ensuring a smooth transition of leadership and preserving institutional knowledge within the firm.

By leveraging the expertise of a trusted CPA, construction firms can navigate the complex landscape of 2024 with greater confidence. CPAs not only help manage financial uncertainties but also contribute to strategic growth and long-term success. In this challenging environment, the role of a CPA extends beyond traditional accounting to becoming a vital advisor and partner in achieving operational excellence and financial stability.

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2024-06-27T14:42:17+00:00June 27th, 2024|Business|

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